International Trade Law News

By Douglas N. Jacobson and Timothy F. Hubach

The Treasury Department's Office of Foreign Assets Control (OFAC) has published the public comments submitted on the Interim Final Rule on Economic Sanctions Enforcement Procedures for Banking Institutions that OFAC published in the Federal Register on January 12, 2006 (71 Fed. Reg. 1971). The Interim Final Rule, which listed the factors that OFAC will consider in administrative actions against financial institutions, also included risk matrices and a list of OFAC's suggested "best practices" that should be included in compliance programs maintained by banks. While primarily intended for financial institutions, the risk matrices and suggested "best practices" for compliance programs contain valuable information for exporters and other organizations that must comply with OFAC's economic sanctions programs.

A total of 18 comments were submitted on OFAC's interim final rule. The commenters included associations representing banks, credit unions, life insurers and attorneys (Customs and International Trade Bar Association). Comments were also submitted by commercial banks and credit card issuers. The following is a summary of the primary concerns addressed in the comments:

• Six of the comments said that OFAC should clarify the particular factors that will be taken into consideration in a decision regarding administrative action.
• Six commenters requested OFAC to treat any disclosures as voluntary, regardless of whether or not OFAC previously received information on the same conduct from another source.
• Five commenters contended that the elements of OFAC's compliance program should be modified to apply to institutions other than banks, specifically insurance companies and financial service providers.
• Five of the comments said that OFAC should take into consideration the size of the institution when assessing penalties. They argued that inadvertent violations that do not evidence a systemic weakness in an institution's OFAC compliance program should not result in penalty proceedings, nor should inadvertent violations that occurred in the past be used to classify large banking institutions as a repeat offender.
• Four comments noted that OFAC enforcement should occur at the federal level and should be interpreted consistently across all 50 states. They noted that absent uniform OFAC examination and enforcement by federal authorities, inconsistent patterns of compliance could develop among the many jurisdictions that currently regulate life insurance companies and financial service providers.
• Three commenters requested OFAC to provide additional clarification on how the enforcement procedures will be applied to complex corporate structures.
• Two of the comments requested OFAC to create a safe harbor that recognizes that smaller banks may not necessarily have the resources to comply with the Interim Final Rule.
• One commenter noted that an annual in-depth internal audit may be too costly for low-risk banks. They argued that a "periodic" in-depth audit may be more appropriate for such low-risk banks.
  

Labels: OFAC